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Why the Current System of Long Supply Chain Contracts is Broken

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Archives, Global Logistics, Global Trade Daily, Trucking

Why the Current System of Long Supply Chain Contracts is Broken

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Over $11 billion has been invested globally in last-mile logistics over the past decade, showing the growing importance of the last leg of a shipment’s journey. This reality is especially prevalent with E-commerce exploding—up 33% to $792 billion in 2021 alone.

Although the transportation industry is upping its game in the last leg sector, its means of financial contracts are antiquated and broken. Let’s explore why the supply chain’s current financial engagement system needs an update.

Static Prices Are No Longer Relevant

The primary method of operations employed in the supply chain, especially within trucking, is in the format of annual contracts with static prices. In times when the market is volatile as a result of crisis or instability, statically priced contracts do not correlate, creating big problems in the supply chain.

With this rigid system, carriers take on all of the pricing risks when freight prices spike. Alternatively, service-level is unpredictable for shippers, taking the chance that their freight might not be delivered. This creates an unbalanced equation where money is only being taken out of the pocket of the carriers, while credibility is unreliable for both parties.

Covid-19 only exacerbated this phenomenon. Long-time contracts are embedded with static prices, ultimately resulting in rejection from carriers in a high-demand era. This has resulted in prices dropping dramatically, and shippers turning to “mini-bids” where contracts are signed multiple times throughout the year—stepping away from the traditional annual process. Static prices only work in a market with highly stable, if not guaranteed, prices—but since the onslaught of the pandemic, the transportation network is nothing of the sort.

Broken Touch Points Along the Supply Chain

Logistics is vital in transportation today, but it is currently exposed to too many risks on every level throughout operations—with everything from lack of drivers to freight capacity unpredictability.

A more flexible and efficient system of freight transportation pricing needs to be procured to try and steady some of the variables. With the current system of brokers acting as contract facilitators, dozens of annual contracts that may—but mostly may not—work out are created. This leads to an ambiguous network where the left hand doesn’t know what the right hand is doing. By cutting out the middle-man, high-tech startups who provide a digital interface that caters to all parties can start to generate a long-term answer for pricing in the supply chain.

“Applications can implement a dynamic pricing model and connect shippers and carriers directly, giving both parties a precise and transparent price resulting in a win-win pricing proposal,” says Dmitri Fedorchenko, a founder and CEO of Doft.

Creating a large network of truckers that can bid instantly, the demand is then directly connected to the suppliers. A great example of the feasibility of this design is how Uber connected all taxis into one single network via their platform, reducing rates and making it fast and convenient to book.

“Infused with the power of AI, apps can share what is feasible in real-time, with little risk of rejection because rates are accurate up to the very minute of booking,” adds Sergey Zaturanov, CTO and co-founder of Doft.

On-demand shipping applications help shippers source trucks when they need them, and at a price they are willing to pay. Dynamic pricing is calculated by artificial intelligence that has a finger on the pulse at all times, ensuring all parties of accurate information. Some examples of apps currently blazing trails in freight partnership are Convoy, Uber Freight, and Doft.

Digital apps can offer an open forum platform for the last mile of the supply chain. This helps to provide a more up-to-date method of delivery and stimulates Just-in-Time (JIT) shipping—something the transportation industry desperately needs right now. With trucks just one click away at a fair market price, on-demand freight shipping marketplaces will commence a revolution for the future of trucking.

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Dmitri Fedorchenko is the CEO and co-founder of Doft, an online shipping marketplace & technology company with a mission to create a global positive impact in logistics optimization.

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Archives, Global Trade Daily, International Trade, Special Reports

The Trade Finance Landscape in 2022: Automation and Digitalization

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Given the rapid pace of digital transformation, it is often surprising to learn how many critical industries and services remain behind the curve, relying on manual processes and large-scale paper documentation. Global supply chain disruption resulting from the COVID-19 pandemic has highlighted that international trade finance is one such industry.

International trade finance remains mired in an avalanche of paper, a plethora of conflicting national regulations and processes, and systems that do not communicate well with each other. These burdens, coupled with the industry’s failure to adapt quickly to more modern methods of analyzing credit eligibility, hit medium, small, and microenterprises (MSMEs) particularly hard. As MSMEs account for a large part of total global trade and are the largest employers worldwide, it is far past time for the industry to make changes that provide greater and simpler access.

This article reviews digital transformation efforts in global trade finance and considers the prospects for digitization and automation in the coming years.

The state of digitalization in global trade finance

After a drastic dip in 2020 as COVID-19 shut down countries worldwide, the international flow of goods rebounded strongly in 2021, and significant growth is expected to continue in 2022. And, according to the World Trade Organization, 80 to 90% of this flow is dependent on trade finance.

Unfortunately, trade finance is heavily document-dependent at every stage, and the burden of document preparation is only exacerbated by the need to verify and process documents along the way. In addition to being environmentally questionable in an era of extreme sensitivity to climate change, the paper-intensive processes underlying traditional trade finance are inefficient and create unnecessary access barriers.

It is somewhat surprising how far behind trade finance remains, given the advances in automation of many other financial processes and the benefits of digitalization. For example, automating invoicing and payment processing can lead to 15.4% more invoices getting paid on time, which is crucial for business success.

Despite the availability of tools and systems that can easily facilitate the automation of current manual processes, trade finance participants, especially banks and financial institutions, remain behind the curve. 

The ICC’s annual report on global trade finance presents discouraging data about automation efforts. It reports that 45% of banks still have completely manual document verification processes, more than 30% have fully manual settlement and financing processes, and around 25% rely on manual processes for credit issuance and advising.

The net effect of reliance on traditional methods is that many organizations cannot effectively participate in trade finance systems. Outdated modes of assessing creditworthiness, coupled with overly burdensome documentation demands, combine to deny equal access to many businesses. And this result hinders global trade.

Roadblocks to digitalization

Not surprisingly, many objections to digitalization and standardization are familiar mantras. The cost and inconvenience of implementing new systems have long been favorite protests against digital transformations, and they have raised their heads again for trade finance automation.

However, time and again, it has been shown that companies taking this “moving forward is too difficult” approach don’t maintain their position in the industry; instead, they quickly fall behind their competitors. Indeed, the more forward-thinking companies can expect to reap the most important benefit from their investment – increased revenue growth and profits.

A more compelling concern about digitalization is data privacy and security. These concerns are more than relevant in an era where data privacy regulations are becoming more prevalent and more stringent, and the number of cybercriminals is increasing rapidly. But frankly, there is far more opportunity for data loss and misappropriation in paper-based manual systems.

Organizations can apply today’s advanced cybersecurity standards and tools to build robust and secure automated replacements for their existing manual processes. And the application of increasingly improved, artificial intelligence-based analytical tools can help financial institutions eventually make better decisions about extending finance to market participants, opening access to more organizations, and expanding both global trade and the finance market.

The International Commerce Commission digitalization plan

Recognizing the lack of progress on digitalization of international trade finance systems and the damaging effects on MSMEs, the ICC established a working group to build a new trade finance architecture. Working with McKinsey and Fung Business Intelligence, the ICC Advisory Group on Trade Finance put together a three-phase, ten-year trade finance modernization plan, which it published in late 2021.

The ICC plan attempts to address several well-recognized issues in global trade finance, including the complexity of transactions, the lack of transparency in trade finance decision-making, and the credit constraints preventing MSMEs from equal access to finance. The plan is highly ambitious and will require cooperation from governments, financial institutions, and trade organizations worldwide. But it can make trade finance simpler, more effective, and more inclusive.

While the details of the plan go far beyond the scope of this article, the plan generally proposes the development of a so-called interoperability layer. This layer is a virtual construct built by harmonizing disparate existing finance standards (specifically concerning data models and APIs), establishing new standards to address gaps in finance regulation, and creating uniform playbooks for global trade participants. Standardized automation playbooks have already achieved success in many other areas, such as closing business sales and increasing data consistency.

Phase 1 lasts 12-18 months and focuses on building buy-in for existing standards, bringing more organizations into a common framework. This phase will also identify areas where standards are lacking and propose options to fill these gaps in coverage.

Phase 2 takes place in 2-3 years. The goal of Phase 2 is to finalize the first round of standards that serve as the basis for the interoperability layer and develop standards and structures for APIs that market participants can use to access trade finance systems. In this phase, the governing body of the plan will push for greater participation, specifically from supply-side participants (i.e., financial institutions).

Phase three, which covers the next seven years, is primarily scale-up and refinement. Based on the previous years’ experience, market participants will work to improve on standards and drive usage of trade finance playbooks. Importantly, however, phase three is where architecture truly gets involved, with the launch of common systems that participants can access directly or via API.

Harmonization of laws and regulations has had varying levels of effectiveness in fields ranging from international trade to intellectual property to employment and human rights. It remains to be seen if the ICC proposal can effectively overcome the inertia that has so far gripped the trade finance industry. But if not the ICC proposal, then other digitization efforts must take place to facilitate supply chain 4.0.

Conclusion

The COVID-19 pandemic has put the global supply chain in the spotlight, unfortunately in a less than positive way. But as the world looks at how to resolve supply problems, global trade finance players have the perfect opportunity to revisit their processes and how they can facilitate international trade. As with so many other industries, the obvious answer is automation and digitalization. Hopefully, the market will heed this call and start the change sooner rather than later.

Trade credit
Archives, Banking, Global Trade Daily, Trade Credit Insurance

ITFA Takes A Harmonized Step Towards Trade Credit Insurance

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The ITFA (International Trade and Forfaiting Association) recently released a new initiative in the form of a Basel III-compliant trade credit insurance policy form. Designed to assist insurers and financial institutions to negotiate new deals and help establish a standardized Basel III policy, the IFTA’s initiative also represents an effort to help trade credit insurers in an era where insurance companies are seriously re-evaluating how they operate.

Trade credit insurers, and the insurance industry as a whole, have been greatly challenged by the economic fallout created by the pandemic and the lockdowns. The frequency of insolvencies from commercial customers due to financial difficulty has risen greatly. Normally, credit insurers would cancel (or at least limit) coverage for buyers who display signs of being unable to pay. 

But due to the serious economic situation created by the pandemic, there is now the dramatically increased risk of trade credit being withdrawn across the board. In this article, we’ll cover why insurance plans including TCIs have become more relevant since the start of the pandemic, how the IFTA’s new policy should help trade insurers, and then what we can expect the near future to look like for the insurance industry overall.

What is trade credit insurance?

Trade credit insurance, or TCI, protects businesses against the inability of commercial customers to pay for services or products. The inability of customers to pay may result from financial woes, bankruptcy, societal upheaval, or other factors. The purpose of a TCI plan is therefore to help businesses ensure they still receive proper cash flow as a result of doing business with a customer who won’t or can’t pay. Banks, in particular, utilize trade credit insurance for capital relief and to reduce financial risk when conducting transactions. 

In many industries, it’s common for customers to take out a line of credit in order to make a large purchase. Of course, any business that lends money to customers is taking a risk that the total amount lent (in addition to any interest) will not be repaid. It’s even a greater risk when the debt is unsecured and there is no collateral to reinforce the loan. 

A comprehensive TCI plan will compensate a business for any unpaid debt, depending on what the coverage limits and other details of the plan are. Since most lines of credit that businesses give for large purchases are unsecured, having a TCI plan in place will mitigate much of the risk. In other words, businesses with a TCI plan at the very least should be more comfortable with extending lines of credit to customers, and they will have a backup plan in the event that the entire debt is not paid. 

Why the pandemic has demonstrated a need for insurance 

Due to greater financial uncertainty since the pandemic began, there has been a drastic increase in the number of businesses and individuals alike applying for insurance coverage. It’s not just TCI plans either. The number of business owners applying for life insurance coverage, for instance, has increased dramatically as a means to protect their financial assets in the event that the worse happens.

It’s not hard to see why. Covid has proven to be deadly for patients who are older and/or have existing health issues. That’s most likely why the number of adults who have purchased a life insurance plan has increased to 50% of adults in Canada and 52% of adults in the United States. 

If anything, the pandemic has demonstrated that there is a very real need for businesses and organizations to have an insurance plan (or plans) in place to help ensure financial stability in an increasingly volatile era. It’s also demonstrated a greatly increased demand for insurance coverage across a number of different policies and plans. Other insurance plans that are in greatly increased demand from business owners include general liability insurance, worker’s compensation insurance, and commercial property insurance. 

And now that insurance companies (in general) are experiencing much higher demand since the start of the pandemic, there is much more uncertainty in regards to the timing and extent of claims, as well as the fact that most insurance agencies are being forced to increase premiums and raise additional capital to help reverse the decrease in return on equity. Like the businesses they are insuring, insurance companies themselves are likewise at increased risk.

Even though the policy by the ITFA is in regards to trade credit specifically, it may provide us with a blueprint on how risks and costs may be reduced for insurance companies overall as well as the financial institutions they work with. 

What does the ITFA’s new policy form do?

Basel III is an international regulatory framework that was made as a response to the 2008 financial crisis. The new ‘harmonized’ Basel III-compliant policy form that was released is designed to help insurance companies and banks negotiate new deals as well as standardize a trade credit policy. 

The new form covers receivables policies and is intended to generate more insurable opportunities while keeping costs and time spent to a minimum. As noted previously, banks and financial institutions often rely on TCIs for capital relief and to keep risk to a minimum. The issue, however, is that banks and TCI agencies often each possess their own Basel III policy forms. 

When a bank and TCI agency attempt to work together, many hours or even days are spent on negotiating forms. This is difficult because all forms being negotiated are kept confidential and much work goes into settling on similar wording. Needless to say, negotiations can be extended and expensive. 

The goal of the ITFA’s form is to ‘harmonize’ wording during negotiations between banks and insurance companies so that two primary goals are accomplished: one, that insurance carriers can more clearly based on their services provided and the details of their policies versus policy wordings, and so that banks can focus more on their pricing. To put it into simpler terms, it aims to standardize how insurance policies are worded. 

As Sean Edwards, the CEO and Chairman of ITFA stated at the 2021 ITFA conference, “Consistency, predictability and a reliable form is paramount to regulatory bodies further recognizing trade credit insurance as a viable risk transfer mechanism for capital substitution. We need all banks, insurance companies, law firms, and brokers moving in the same direction if we are to grow the overall industry.”

Streamlining policy negotiations between banks and insurance companies with standardized wording is certainly one way to provide relief to insurance companies, and one that could be applied to other insurance companies outside of TCI carriers as well. 

Other actions include governments offering their support to insurance markets by guaranteeing transactions made by insurance companies through reinsurance agreements and, in the case of the European Union, having export credit agencies ensure short-term trading risks instead of private insurance companies. 

Conclusion

As the world starts to emerge out of the economic crisis generated by the pandemic, private businesses, banks, and insurance companies are all at greater risk than they were before. Insurance companies including TCIs are in a position where their services are in much greater demand than before, and they need to minimize financial losses. The move by the ITFA to standardize language and streamline negotiations between banks and insurers is one-way costs can be reduced. 

payments
Archives, Banking, Global Trade Daily

Why the Players That Focus on Both Sides Will Win the B2B Payments Market

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Remote work initiatives have created a strong tailwind for digitizing business payments, with companies rushing to move away from checks and onto card and ACH payments. This huge market–roughly 10 times the size of the consumer payment market–is ripe for change. Over the past decade, a decent amount of investment has gone into this area. Everyone is getting into the game: banks, card providers, and fintech providers, for example. It’s very early days, with paper checks still the predominant form of payment in the US. Who will win the market? Ultimately, it will be the players that can best address the needs of both buyers and suppliers.

I’ve spent time on both sides. Before coming to Nvoicepay, which helps automate the payment process on the accounts payable side, I was with Billtrust, which automates accounts receivable. Their founder and CEO, Flint Lane, was a big believer in the need to solve for both sides of the equation. That was my first introduction to the concept. Now, having sold into both accounts receivable and accounts payable, I’m a firm believer as well.

Two Sides of the Coin

There are two sides to every payment—creation and receipt. When it comes to consumer payments, both sides are straightforward, especially with today’s technology. But in the world of business payments, process complexity adds friction between them. Accounts payable’s goal is to manage cash flow by hanging on to money as long as possible. That puts them at odds with accounts receivable, who wants to get paid as quickly as possible. Digitizing transactions doesn’t efficiently address the complexity or friction between the sender’s and receiver’s processes. And the lack of consideration can worsen the issue.

For example, funds sent by accounts payable may hit their vendor’s bank faster with card or ACH payments, but a complicated payment application process can lose the receivable department precious time anyway. Without a way to streamline the process from beginning to end, simply switching to electronic means in a few places may not offer the time savings that businesses hope to achieve.

What’s the Solution?

Portals work well for larger companies that can dictate the terms of doing business to their smaller customers. But their customers may not be happy having their own interests dictated to them. And if you don’t have that kind of authority, chances are your portal will go unused because you’ve created a one-off process for your customers, making life harder for their accounts receivable people.

Electronic means can help accounts payable make payments at the last minute, and they’d prefer paying by card over ACH because they can make money on card rebates. But convincing suppliers to accept card is often a challenge because the accompanying fees can get expensive very quickly. Meanwhile, enabling suppliers for ACH translates to AP managing large amounts of sensitive bank account data.

Many organizations end up “dabbling” in electronic payments because of these enablement challenges. That leaves them managing four different payment workflows–card, ACH, wire, and a whole lot of checks. This is the problem that payment automation providers solve by taking on the supplier enablement process, maximizing card rebates, and simplifying AP workflows.

As much as both sides might agree that digital payments are the future, they’re stuck between a rock and a hard place without automation.

Paving the Way

Fintech businesses like Nvoicepay and Billtrust are bringing automation to payables and receivables separately, and that’s a big step forward. I believe the next generation of solutions will bring both worlds together on a flexible, dynamic platform where both parties to a transaction can choose from a range of options that best meet their needs at any given time.

From an accounts receivable perspective, funds need to be accompanied by enhanced digital remittance information. They could offer buyers incentives in dynamic discounts in exchange for speedy payment and a streamlined cash application process through the platform.

On the buying side, easy access to supply chain financing could allow them to take advantage of such discounts while at the same time extending payment terms. The buying organization takes its two percent discount and gives half a percent to the financing organization, paying the invoice within the discount window. Then the buying organization pays the financing organization in 30 days. Payables manages cash, gets part of the discount and a rebate if they pay by card.

Bringing it All Together

The key to creating these win-win outcomes is including the presence of a technology platform that uses data to offer convenience and choice, allowing organizations to meet whatever their needs happen to be at any given time. For example, if your cash position is good, you may not offer discounts or offer them more selectively. If you work with many small suppliers with tight margins, consider taking the card option off the table.

These are not new ideas, but they haven’t yet been addressed effectively with technology. Historically we’ve tried to do this through EDI (Electronic Data Interchange), a computer-to-computer communication standard developed in the 1960s. It’s always been very clunky, and it is unwieldy for the volume and velocity of data in the supply chain today. However, a majority of organizations still use it for lack of anything better.

Nacha and the Real-Time Payments Network add remittance data to ACH payments, but that’s not a complete answer. There still needs to be some technology put in place to incorporate the data into payment workflows.

Suppose you look at fintech innovation in the consumer payments market as a leading indicator. In that case, it’s been less about new payment products and more about using technology to send and receive money seamlessly, regardless of which electronic network is used.

In B2B payments, fintechs changed the game by thinking about payments as a business process rather than a collection of products, and built software solutions to automate those workflows. With remote work providing an additional incentive, many more organizations are adoping electronic forms of payment. That, in turn, makes data more available to continue developing digital platforms. Whoever gets there first has a good chance of becoming the leading player, but you won’t get there at all if you don’t build for both sides of the equation.

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Derek Halpern is Senior Vice President of Sales for Nvoicepay, a FLEETCOR Company. He has over 20 years of technology sales and leadership experience, including 16 years in the fintech and payments space. 

blockchain technology
Archives, Banking, Global Trade Daily

Solving Supply Chain and Security Problems with Blockchain Technology

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In the last few years, blockchain has become a buzzword in the tech industry. The concept entered the public consciousness through Bitcoin, which uses a specific blockchain as a core component of its consensus algorithm. Back in 2017-2018, many experts were proclaiming “blockchain, not Bitcoin,” while today, Bitcoin’s latest meteoric rise and ensuing crash has flipped that narrative on its head. But while blockchain technology is often associated with cryptocurrencies, its application is powering the fourth industrial revolution and mainstreaming applications. In cybersecurity, blockchain technology can help improve security and resiliency, at a cost.

To understand blockchain-based cybersecurity, one must first understand some basic principles of how a blockchain works. A blockchain is one form of distributed ledger technology (DLT), meaning that it is used in distributed systems. Distributed systems offer greater resiliency than centralized systems since a decentralized network has no single point of failure, but that resiliency comes at a cost. Without a single source of truth for the network, reaching consensus can be difficult. A blockchain typically serves as part of that consensus mechanism—establishing a reliable record for the system to use.

Implementations vary between different blockchains, but in general, a blockchain takes some chunk of data and connects it cryptographically to the previous chunk of data, forming a chain of data blocks—a blockchain. That data can itself be encrypted using public-private key pairs so that only authorized users (or owners) can access the records.

Typically, each block of data includes a header, which summarizes the contents of the block. That header includes a cryptographic hash of the previous block’s header, and that hash forms the link between each block. Because each block builds on and explicitly references the contents of the previous block, a properly implemented blockchain is extraordinarily difficult to alter. In order to change a block’s data, every block after that block must also be edited to build on the new hash of the altered block. Consequently, older blocks are much harder to change than newer blocks.

The immutability and decentralization of a blockchain make it well-suited to certain applications. For example, financial institutions can benefit from unambiguous, cryptographically provable ownership records. Bank of America recently announced that it joined the Paxos network to speed up settlement times for stock trades, while JPMorgan has settled billions of dollars of transactions on a private version of Ethereum. From healthcare records to private genetic data, blockchain technology is also revolutionizing the medical industry. Legally, blockchain implementations could help businesses by providing a reliable, auditable data record.

As we digest the takeaways from the late spring 2021 crypto-crash, gas fees required to process transactions over Ethereum blockchain networks and environmental costs associated with Bitcoin mining need to be reexamined. But what are gas or transaction fees? While “gas fees” refers to the computing power required to securely execute a transaction on the Ethereum blockchain, they can be analogized to the transaction fees to process any crypto-currency transaction. On the Bitcoin blockchain, fees are required to pay the network’s miners to accept and verify a transaction.

While these gas fees and mining fees are an essential part of the security behind the scenes, they have become substantial deterrents to the growth of the digital asset marketplace. Startups that can create cost-savings in gas or mining fees to process transactions will be well-positioned to lead the next generation of blockchain security solutions.

If your company is considering implementing blockchain technology, consider carefully what information needs to be stored. My advice is to evaluate whether you need to use a blockchain. It is a powerful and useful technology, but it is not the right tool for every job, regardless of how popular it is. Unlike a traditional database, data stored on a blockchain effectively cannot be altered, so you need to make sure that whatever records you include compliance with all applicable laws and regulations. A mistake here could be extraordinarily difficult to fix. In some industries, the benefits will be well worth the risks. In other industries, the transaction costs need to first come down.

Some solutions to consider for industries where blockchain makes sense today:

-Bide your time. Wait it out. The market is evolving rapidly, decentralized and dynamic. With so many costs with no consolidation, new competitors are entering the market every day, and chances are that fees will reduce as a percentage of the transaction over time.

-You could also look for new blockchains or wrappers that “wrap around” existing blockchains to support more transactions, relieving congestion and offering lower fees.

-Partnering with value-priced wallets offering scaling technologies enabling lower fees is also an avenue to explore.

In the end, blockchain cybersecurity simply leverages the immutability and decentralization of a blockchain to make tampering with data more difficult while reducing centralized points of failure and giving users more control over their data. Ignore the hype, and evaluate whether this technology is right for your use case. Periodically reevaluate. This is a dynamic technology, and so is the market.

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Louis Lehot is an emerging growth company, venture capital, and M&A lawyer at Foley & Lardner in Silicon Valley.  Louis spends his time providing entrepreneurs, innovative companies, and investors with practical and commercial legal strategies and solutions at all stages of growth, from the garage to global.

supply chain finance
Archives, Banking, Global Trade Daily, Stories

5 Companies to Consider for Supply Chain Finance

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Supply chain finance is a set of technology-based business and financing processes that link the various parties in a transaction—buyer, seller and financing institution— to lower financing costs and improve business efficiency. Short-term credit that optimizes working capital for both the buyer and the seller is provided by what the hip kids refer to as SCF.

There are several SCF transactions, including an extension of buyer’s accounts payable terms, inventory finance and payables discounting. The SCF solutions differ from traditional supply chain programs to enhance working capital, such as factoring and payment discounts, by connecting financial transactions to value as it moves through the supply chain. Also, SCF encourages collaboration between the buyer and seller, rather than the competition that often pits buyer against the seller and vice versa.

Tom Roberts, senior vice president of Marketing at PrimeRevenue, warned Global Trade readers in September 2016 that a multinational bank may not be the way to go when it comes to SCF. “First, both global supply chains and multinational banks are highly susceptible to changes in the economic and geopolitical landscape,” Roberts wrote. “Supply chain finance programs that are locked into a single source of funding are held hostage to that funder’s risk tolerance. It’s a dangerous game, especially as the global coverage of multinational banks continues to be a moving target.”

No one bank—no matter how global—has the processes and systems in place to serve all currencies and jurisdictions, he also noted. “If a company needs to add a supplier that can’t be funded by their multinational bank, they have to not only source alternative funding, they have to handle the back-end systems integration required to facilitate the trading of receivables. It’s a resource-intensive approach that many companies simply can’t afford.”

The best-in-class supply chain finance programs are typically based on multi-funder platforms, rather than closed, bank-proprietary platforms, according to Roberts. “While it may seem counter-intuitive to simplify supply chain finance by adding more players, it’s not,” he wrote. “With the right processes and systems in place, a multi-funder strategy can increase program participation, secure more competitive pricing and discounts, and ultimately increase cash flow predictably and sustainably for both buyers and suppliers.”

What follows are Global Trade’s picks for places to consider for SCF.

Raistone Capital

Located on Madison Avenue in New York City, Raistone Capital started as a division of Seaport Global, a full-service, independent investment bank. Today, Raistone Capital has access to significant levels of institutional capital and the ability to deliver on customer’s needs, “whether it’s $50,000 or $300,000,000+,” according to the company. Raistone even created invoiceXcel (iX), a complementary financial solution so banks “can continue to serve clients in this ever-changing regulatory environment by providing additional capital offerings to customers—such as supply chain finance and accounts receivable finance.” 

Flexport

Headquartered in San Francisco—with global offices in several major U.S. cities as well as Hong Kong, mainland China, Germany and Holland—Flexport offers clients lines of credit ranging from $100,000 to $20 million to finance inventory, freight and duty and so that customers can accelerate product expansion and revenue growth; enable strategic decisions that reduce landed costs; and minimize supply chain disruption. Best of all, it costs nothing to connect with a Flexport Capital expert to discuss how your supplier terms, customer terms, and capital structure can be optimized to support your working capital goals and business growth. 

PrimeRevenue

Giving the expertise Tom Roberts has already shared via Global Trade, how could we in good conscience skip over his Atlanta-based company that also has offices in Hong Kong, Australia, London, Frankfurt, and Prague. Billed as “the leading provider of working capital financial technology solutions,” PrimeRevenue helps more than 30,000 clients in 70+ countries optimize their working capital to efficiently fund strategic initiatives, gain a competitive advantage and strengthen relationships throughout the supply chain. Established in 2003, PrimeRevenue boasts of now having “the largest and most diverse global funding network of more than 100 funding partners.” They support 30+ currencies on a single cloud-based, multi-lingual, cross-border network, facilitating a volume of more than $200 billion in payment transactions per year.

Trade Finance Global

London-based TFG assists companies with raising debt finance, accessing many traditional forms of finance while also specializing in alternative finance and complex funding solutions related to international trade. “We help companies to raise finance in ways that are sometimes out of reach for mainstream lenders,” according to the company, which taps into more than 250 lenders with unique focuses on different products and/or geographies. And TGF boasts of being able to “quickly get to the key decision-makers of financiers, to make sure your application gets through to the right person.” That ability is built on reputation alone, as TGF is 100 percent independent and not tied to any lenders. Instead, they find the most appropriate SCF solution for the individual customer.

Bank of America Merrill Lynch

Okay, much of this article details why a multinational bank may not be the best option when it comes to SCF, but Charlotte, North Carolina-based Bank of America Merrill Lynch, which also has central hubs in New York City, London, Hong Kong, Minneapolis, and Toronto, does have a solid, end-to-end SCF program. Bank of America Merrill Lynch boasts of having a number of tools to help: segment suppliers and analyze rates; design an optimal marketing program; and educate suppliers on program benefits.

“Bank of America Merrill Lynch made sure that the resources needed—support staff, legal, credit and such—all worked towards achieving the efficient deployment of the program,” says Philippe Andre Marcoux, credit and treasury manager at SCF customer Uni-Select Inc., a large multiservice corporation that distributes motor vehicle replacement parts, tools equipment and accessories. “Communication between Bank of America Merrill Lynch, our suppliers and ourselves was the driving force behind the successful implementation. Tools to evaluate the benefits to our suppliers and ourselves were key in convincing our team to participate.”